Magazine Spring 2001

The Power of Strategic Integration

Robert A. Burgelman and Yves L. Doz April 15, 2001 Reading Time: 24 min

All multibusiness corporations face the strategic imperative imposed by the stock market: maximizing the profitable growth of their businesses. Long-term success in meeting that imperative requires developing new strategy-making capabilities. During the early 1990s, many multibusiness companies focused on improving profitability through operational integration. They reengineered, focusing on the capabilities that would improve speed, quality and efficiency —and pruning business activities that no longer fit the value-creation logic of the corporate strategy. Then, starting in the late 1990s, senior managers began to focus on integrating strategies to add to revenue growth. Strategic integration involves more fully exploiting growth potential by combining resources and competencies from business units and directing those units toward new business opportunities that extend the existing corporate strategy.1

Today leaders of multibusiness corporations are learning to identify the maximum-strategic-opportunity set — those opportunities that can let companies take the fullest advantage of their capabilities and their potential to pursue new strategies. But to exploit those opportunities, managers need to become accomplished at what we call complex strategic integration (CSI). (See “About the Research.”)

About the Research »

Five Forms of Strategic Integration

Perceiving the maximum-strategic-opportunity set and tackling complex strategic integration are difficult responsibilities. Senior managers must be able to see potential business opportunities that do not yet exist — as well as the unarticulated strategies that are at the frontier of what a company is capable of doing. To help with those tasks, we propose a conceptual framework that features two dimensions (scope and reach) affecting the five forms of strategic integration (overambitious, minimal, scope-driven, reach-driven and complex). (See “Strategic Integration in the Multibusiness Corporation.”)

Strategic Integration in the Multibusiness Corporation »

A location on the scope dimension indicates the extent to which pursuing a new business opportunity requires the collaboration of existing business units within the corporate strategy. Intel’s chipset and motherboard businesses, for example, need to collaborate on developing demand for new products for the company’s core microprocessor business.

A location on the reach dimension indicates the extent to which developing a new business opportunity does require changing the existing corporate strategy — perhaps by transforming a business unit or creating a new one. To cite Intel again, in 1999 the company extended its corporate strategy beyond its traditional focus on personal computers and pursued business opportunities in appliances by forming a Home Products Group within its Intel Architecture Business Group.1

Among the five forms of strategic integration, overambitious strategic integration and minimal strategic integration are the two that value-minded companies should avoid. Overambitious strategic integration corresponds to the opportunity set defined by maximum scope and reach; it assumes that a company’s available capabilities do not impose trade-offs between scope and reach. Jim Robinson’s effort to turn American Express into a “financial supermarket” during the late 1980s and early 1990s is one example of that type of strategic integration.3 Minimal strategic integration corresponds to the opportunity set defined by perceived limits on scope and reach. Traditional strategy-making approaches based on capital-investment and portfolio-planning decisions are typical. Two other forms, scope-driven strategic integration and reach-driven strategic integration, are productive but fail to maximize the company’s growth potential.

The fifth form, complex strategic integration, corresponds to the maximum-strategic-opportunity set. The maximum-strategic-opportunity set features as much scope and reach as is consistent with the trade-offs that the real world imposes. It is neither overambitious nor overly cautious. Companies achieving complex strategic integration take into account external constraints such as regulatory, technological and market forces plus internal limitations on competencies, capabilities and resources.4 Complex strategic integration involves the discovery and creation of new business opportunities that combine resources from multiple units within the company (each with its particular perspective and vested interests) in order to extend the corporate strategy in new directions. It sometimes includes integrating contributions from external partners.5

Hewlett-Packard’s Transformation »

Hewlett-Packard’s Transformation

Hewlett-Packard is one of the world’s most adaptive large, established companies. For decades, the HP Way provided guidance for transforming the company through organic growth and metamorphosis. Although occasionally succumbing to pressures to centralize, HP always reverted back to an organizational form containing distinct business units serving distinct markets with technology-based product-leadership strategies. By 1999, HP had 83 businesses, each with its own resources and profit-and-loss responsibility. However, as one top executive observed, “We weren’t articulating a corporate strategy.” Another said, “We talked about portfolio management, but we didn’t do much.”

Between 1996 and 1999, HP’s profitable-growth performance disappointed the stock market. During that period, the company came to the conclusion that its measurement and instruments businesses no longer fit the corporate strategy and needed to be spun off. The current CEO was reaching retirement age, and HP’s board of directors hired Carly Fiorina to replace him. The new CEO represented three firsts for HP: She was an outsider, she did not have a technical background, and she was a woman. Fiorina brought HP’s senior executives together at an offsite meeting in August 1999 to, as she put it, “introduce them to their company. They had concentrated so much on their own businesses that they did not see that HP was unfocused and wide and shallow.”

Fiorina went in search of what the founders had intended with the HP Way and reformulated the belief system, which she embodied in the “Rules of the Garage.” The Rules of the Garage capture HP’s traditional emphasis on inventiveness, product leadership, trust, collaboration, customer focus, abhorrence of bureaucracy, and the desire to make a contribution. The Rules of the Garage were designed to help change senior executives’ attitudes and behavior, which Fiorina believed had become caricatures of what the founders had intended.

During the first nine months of her tenure, Fiorina made several changes to HP’s structure to increase its strategic-integration capabilities. She quickly learned that customers found HP’s fragmentation a hindrance to doing business. In early October 1999, she announced a new organizational structure. The new structure featured four worldwide regions cutting across 16 businesses in which the “back-end,” or “product-facing,” computer and printer groups would interact closely with the “front end,” or “customer-facing,” organizations serving the business-to-business and business-to-consumer market segments. The purpose of the reorganization was to ensure a cohesive and coherent customer experience across all business units.

To increase interdependence at the top-management level, Fiorina also changed the way the executive council operated. And she altered the incentive structure, making top executives’ variable compensation dependent on the overall performance of the corporation. One hundred top-level executives were placed on the scheme initially, with more targeted to join later.

Looking forward, HP’s senior executives face three major strategic challenges. One is to continue to win in each of the core businesses against very strong competitors: Canon and Lexmark in printers, Sun Microsystems and IBM in high-end servers, Dell and Compaq in desktop systems. The second challenge is to exploit existing synergies across HP’s business units through scope-driven strategic integration. The third is to identify and exploit new business opportunities on the basis of HP’s unique combination of assets: in short, complex strategic integration. It remains to be seen how Fiorina’s efforts to increase CSI capability will work out over the next few years. But her efforts are on the frontier of multibusiness strategic leadership.

Complex Strategic Integration at STMicroelectronics »

Complex Strategic Integration at STMicroelectronics

STMicroelectronics resulted from the merger of Italy’s SGS Microelettronica and France’s Thomson Semi-conducteurs. The merger brought together power, signal, analog and digital capabilities in one company. ST developed its complex-strategic-integration capability while responding to the needs of a major customer, Seagate, which needed a smaller, simpler, highly reliable disk-drive controller (and read-write system). ST integrated the various required capabilities, which resided in different divisions and in locations as dispersed as Grenoble, Milan, Ireland and Phoenix, Arizona. During the 1990s the approach pioneered for Seagate became a tried and tested CSI capability within ST, leading to the creation of new opportunities. The Seagate experience gave rise not only to a strategy but to a process that fostered lateral collaboration for creating and pursuing new opportunities.

ST’s distinctive strategy is to develop “systems on a chip”: to integrate into a single chip the functions normally performed by different integrated circuits assembled on a board. That strategy addresses a fast-growing market segment that lies between custom-made, application-specific integrated circuits (ASICs) and mass-produced general-purpose microprocessors. Often the system-on-a-chip strategy relies on customers who specify which capabilities they need to integrate from the various ST subunits. The customer becomes a strategic-integration hub for ST units.

Although seemingly random and often quite informal, complex strategic integration at ST is supported by managerial skills and increasingly well-honed tools (structure, control systems, incentives and behavioral norms). In addition to the regular operating units, ST created a “headquarters region,” which it uses deliberately to explore CSI opportunities. Following a period in the early 1990s when efforts to achieve complex strategic integration sometimes stumbled on transfer pricing and sales-credit issues, a see-through management control system was put in place to enable recognition of business-unit contributions to CSI projects. Measurement and reward systems encourage the pursuit of joint opportunities among business units.

Most ST managers have spent their whole career with the company, know one another well, and understand the perspectives and interests of others. ST is seen as a family in which individual motives are fairly transparent. Thus there is a high level of mutual understanding and trust. In addition, ST’s managers come from more than a dozen countries, many of whom permanently reside in the United States but have maintained their ties to Europe. The pool of cosmopolitan managers has the necessary skills to integrate across national and cultural boundaries.

Customer needs are viewed as sources of CSI initiatives. At ST, a project requiring complex strategic integration becomes real as soon as it has a customer. Among the projects, some are considered of strategic importance for the company’s future. Those are dubbed “Golden Projects,” and top management gives them priority access to resources.

Few multibusiness companies are currently proficient in exploiting the maximum-strategic-opportunity set, but some of the new high-technology giants — in particular Cisco Systems, Intel, Hewlett-Packard and STMicroelectronics — are trying to develop the capability. (See “Hewlett-Packard’s Transformation.”) Cisco has pursued a corporate strategy that depends on the company’s ability to achieve complex strategic integration. Cisco continues to be able to extend the frontier of the maximum-strategic-opportunity set. It does so by quickly identifying, acquiring and integrating the winning companies in the technological-innovation races in newly emerging industry segments that are important for Cisco’s strategy of serving corporate customers’ networking needs. The stock market’s perception that Cisco is succeeding in its efforts sustains the high share price that enables it to buy the winners in the first place, even at hefty premiums. STMicroelectronics offers another example of a company with a focus on improving complex strategic integration. (See “Complex Strategic Integration at STMicroelectronics.”)

Two Complex-Strategic-Integration Challenges

Developing a complex-strategic-integration capability involves two important challenges for executives: first, managing the evolving tension between reinforcing the company’s core business and redirecting strategy; second, managing the sharing and transferring of resources among business units.

The Tension Between Reinforcing the Core and Redirecting Strategy

Complex strategic integration depends on finding the right balance over time between reinforcing the core and redirecting strategy. Whereas reinforcement enables moving forcefully and rapidly along a given strategic trajectory, redirection helps a company shift its strategic trajectory, often in anticipation of or in response to major discontinuities. Finding a balance is hard for multibusiness companies used to pursuing more-limited forms of strategic integration. In practice, complex strategic integration may start as pure reinforcement or redirection and then evolve toward a more balanced approach.6

Scope-driven strategic integration reinforces the core.

Strongly centralized companies that have emphasized the interdependencies among their various businesses tend to be scope-driven. Intel (during Andy Grove’s tenure as CEO) and Disney (under Michael Eisner) are examples of companies that have been most comfortable finding opportunities by extending their scope.7 Scope-driven strategic integration contributes to the reinforcement of the strategic thrust of the company’s core business. It strives to capitalize on deepening competence and capturing market share through the continuous concerted action of multiple business units. Reinforcing the core requires rapidly mobilizing resources across multiple business units, scaling up to selectively pursue major opportunities and dropping opportunities that could stretch resources too thin.

If companies traditionally have emphasized scope and reinforcement, it may be hard for them to become comfortable with reach-driven strategic integration and redirection. Because redirection requires figuring out the strategic context for a new business, it is more risky and difficult than reinforcement. Only by increasing the quality of strategic decision making can companies improve the odds of making the right decisions in unfamiliar areas. That may require breaking major corporate decisions into sequences of learning and commitment, with risks contained and reassessed at each stage and at each management level involved in the decision-making process.

Intel’s networking venture provides an example of the difficulties of achieving redirection. Intel had entered the networking business in the late 1980s as a result of internal entrepreneurship, and it garnered several hundred million dollars in sales by the mid-1990s. Yet the general manager was not able to get Intel’s highly focused top management to view the networking business as strategic. As a result, it received only limited internal resources. In the face of the rapid growth of the networking industry during the mid-1990s, Intel remained a second-tier player. Only in 1997, when then-COO Craig Barrett raised concerns about Intel’s ability to develop new businesses, was a new general manager able to get top management to view networking as strategic for the company.

Reach-driven strategic integration supports redirection.

Strongly decentralized companies that traditionally have emphasized corporate entrepreneurship and organic diversification around core competencies tend to be reach-driven. Johnson & Johnson, 3M and Hewlett-Packard (before the arrival of CEO Carly Fiorina) are classic examples. Reach-driven strategic integration helps companies achieve profitable growth through redirecting the strategy. Often discontinuities make previously peripheral competencies more central to the evolution of the company and lead to opportunities to leverage those competencies.

The technical or market signals associated with the discontinuities, however, are often difficult for corporate managers, who are removed from the front line, to detect. Redirection therefore requires the involvement of middle and senior managers. Dick Hackborn’s successful effort to drive Hewlett-Packard toward a leading strategic position in digital printing during the early 1980s is illustrative.8 Internal entrepreneurs also have redirected Johnson & Johnson’s and 3M’s evolution.

Becoming comfortable with scope-driven strategic integration and reinforcement is the key integration challenge for companies traditionally emphasizing reach and redirection. Pursuing scope-driven strategic integration often requires strong top-management intervention. That was the case at 3M and Johnson & Johnson during the early 1990s, when the CEOs sought to increase cross-business collaboration in their entrepreneurial, strategically fragmented companies.9

Johnson & Johnson’s effort to create a Hospital Services Group (HSG) during the 1980s provides a prime example of the difficulties of achieving reinforcement in companies that traditionally emphasize reach and redirection.10 HSG was a response to hospitals’ demands for greater efficiency. HSG wanted to provide a unified interface with hospital customers for ordering, billing and logistics. It took many years, however, for Johnson & Johnson to secure the collaboration of its fiercely independent product divisions for creating such a cross-business group.

Managing Resource Scarcity and Mobility

The second top-management challenge involves managing resource scarcity and mobility. Complex strategic integration requires sharing and transferring resources among business units. Tangible resources — such as money, capital equipment, raw materials, types of labor and management time — must be allocated among different business units. The scarcity of such resources creates a zero-sum game: What one unit gets, the others cannot. By contrast, some intangible resources — such as corporate brands, patents, know-how, technology and competencies (unless embodied in specific people) — are more like public goods: Their use in one part of the organization to pursue one set of opportunities does not prevent their use elsewhere. Although the sequence of specific projects may still occasionally pit managers against one another in competing for some resources, the availability of free resources creates a positive-sum game, in which self-interested but forthright cooperation pays off.11

Another important consideration is that some resources are more mobile than others. Corporate image, for example, is a resource that is highly mobile and applicable across multiple opportunities at no extra cost and without requiring managers to actively share. Some resources are less mobile because they require the sharing of information to create an information advantage (as the various business units of American Express did in trying to leverage data on consumers’ spending patterns). Tapping other resources may require setting up and managing interdependent joint projects across units. That would be true for HP or Motorola to make automotive electronics. Again, top-level leadership can help. GE management, for example, helped overcome the inherent difficulties of moving resources when it established General Electric Credit Corp. to assist GE’s industrial businesses in winning major customer contracts.

Building a Complex-Strategic-Integration Capability

Like most other key corporate capabilities, building CSI capability is a task for the highest level of management. Only top management can create a corporate context that makes complex strategic integration an ongoing institutionalized process rather than an infrequent occurrence relying on ad hoc championing efforts of some highly dedicated managers. Top management needs to ensure that all high-level managers develop the skills necessary to effectively pursue CSI opportunities.12

CSI Context

To develop a corporate context that encourages complex strategic integration, top management should focus on organizational structure, managerial control systems and managerial incentives. Each makes a distinct contribution to CSI, and each needs to reinforce the others.

Organizational structure.

For effective collaboration, a company’s organizational structure must be able to accommodate the real and evolving interdependencies among new and existing businesses. Companies need a framework for assessing the interdependencies that complex-strategic-integration initiatives create — and a repertoire of organizational-design options to augment the company’s entrepreneurial capability.13 Intel, Nokia and Lucent, for instance, have created new-venture groups — a first step in using structure to facilitate CSI. As evolving CSI efforts generate new information, previous assessments must be re-evaluated and existing structural arrangements reconsidered.

Another structural approach might involve setting up integrators — senior executives or a corporate staff unit whose role is to stimulate operational units to pursue complex strategic integration. For instance, Bob Pittman played a key business-integrator role after the merger of Time Inc. and Warner Communications. Another structural approach is to redistribute the complex-strategic-integration task by giving senior executives dual responsibilities: being in charge of major functional or business activities while also being responsible for new-business development based on complex strategic integration. That is essentially the approach adopted by HP’s Fiorina.14

Managerial control systems.

Managerial control systems can encourage CSI, too. One scholar has identified four types.15 First are diagnostic control systems, which can foster cooperation if they register cross-unit contributions. However, most focus on individual business-unit performance and may deter business-unit managers from strategic-integration activities. For instance, ABB was initially successful in developing business-area strategies that required fairly intense cross-business collaboration.16 However, ABB’s Abacus diagnostic control system, which closely monitored the performance of the company’s thousands of investment and profit centers, concentrated on individual unit performance and impeded strategic integration. By 1996, top management felt that ABB had become too fragmented. The result was “over-individualistic behaviors by the rulers of smaller kingdoms,” as one observer noted. The problem is not uncommon. Collaboration requires a level of sophistication and self-confidence that may elude managers used to operating under control systems that emphasize individual unit performance.

Second are belief systems, which help define behavioral norms that support cooperation and reciprocity. Cooperation and reciprocity are probably easiest to develop in companies such as investment banks, which engage in multiple deals involving the same networks of people. In such companies, reciprocity norms govern repeated interactions. Cooperation and reciprocity are less easy to develop in situations involving the infrequent, large, one-time commitments that complex strategic integration may call for. They usually emerge gradually over time as part of a culture of trust and support among managers. For instance, at 3M, the business units own products, but not technologies. People really believe that technologies are freely available to anyone at 3M who wants to use them for new-business development.

Third are boundary-setting control systems. They are useful in identifying major risks, in particular those that lead companies to pursue overambitious strategic integration. Intel’s New Business Group sets boundaries. It aims, as much as possible, to avoid entering new areas in direct competition with existing customers. However, boundaries need to be sufficiently dynamic that they can accommodate serendipity in complex strategic integration.

Finally, interactive control systems help top management signal the importance of CSI. With interactive control systems, complex strategic integration stays on the table in all high-level discussions about corporate strategy. Thus when Intel’s Craig Barrett started involving several hundred senior executives in discussions about how to increase the company’s new-business-development capability, he was able to spur the 1999 creation of the New Business Group.

Managerial incentives.

A major responsibility for the top management of multibusiness corporations is developing and maintaining incentives that encourage the most promising managers to pursue complex-strategic-integration initiatives — without losing their focus on the competitive reality their individual businesses face.17 Incentives must be consistent with structural arrangements and control systems.18 Unfortunately, business-unit managers often face conflicting incentives. And although managers of business units confronted by slowing growth may be motivated to seek cross-business cooperation, managers of profitable and growing businesses may not.

In addition, business-unit managers may perceive incentives for cooperation as blurring their accountability and diffusing responsibilities in dysfunctional ways. A senior executive at a European high-technology company observed that managers’ ability to look beyond the borders of their own business and to think creatively always had been one of the most important criteria for ascending to higher levels in his company. He felt that job rotation and international assignments used for that purpose had led executives to focus on the scope dimension, which “in some cases perhaps led to weaker performance in terms of reach.” The same executive added that the current preoccupation with single-business-unit performance was threatening to weaken the incentives for managers to focus on strategic integration.

CSI Skills

In addition to creating a corporate context that encourages complex strategic integration, top management needs to ensure that the corporation nurtures and develops three mutually supportive senior-executive skill sets. Cognitive, political and entrepreneurial skills can be developed through education and job assignments.

Cognitive skills.

Part of the required CSI skill set is cognitive. Complex strategic integration requires senior executives to think up new strategies that bring together activities and projects located in different parts of the corporation. The challenge is one of imagination, intellectual grasp and capacity for recognizing good strategies. Different managers undoubtedly have different aptitude. But executive development can play an important role by putting managers into positions where they can learn by doing. Sometimes, however, high-level managers try too hard, taking their dreams for reality until, as American Express did with its financial-supermarket strategy, they find themselves in the overambitious set. One of the skills needed is the ability to decide when to exit businesses and abandon dreams as Hewlett-Packard did when it divested its test-and-measurement businesses to focus more on its computer and printer businesses.

Political Skills.

Complex strategic integration involves reconfiguring the flow of company resources through cross-unit projects. Unit boundaries get redefined, and often individual business-unit charters do, too.19 It is primarily top management that needs to build a consistent corporate context to foster and encourage cooperation among units.20 But other high-level managers lobbying for changes in the structural and strategic contexts of the company play a key role. They need strong political skills to gain support from top management and peers for their complex-strategic-integration initiatives. They need to execute partnerships with peers, to create common ground and shared vision, and to manage conflicts between business units. They need to be able to define solutions that serve the interests of various business units (while serving the corporation) and to entice other business-unit managers and top management to cooperate. The skills match those of good politicians, successful coalition builders and diplomats in complex alliances.

Entrepreneurial skills.

Complex strategic integration also requires entrepreneurial skill: the ability to perceive profitable business opportunities and to attract the necessary corporate resources. CSI calls for transforming a project from a small venture to an opportunity for major corporate renewal. Senior executives must master such activities as strategic building and organizational championing so that they can determine the strategic context for major initiatives and convince top management to pour in resources.21

The Unique Role of Top Management

Top management’s task is to develop a strategy-making process that can balance the challenges associated with exploiting existing and new opportunities simultaneously. In multibusiness corporations, that means developing a CSI capability. Corporate leaders must make an explicit commitment to articulating a corporate strategy that facilitates exploring and exploiting the maximum feasible strategic opportunities. Understanding the importance of both reach and scope, they must make sure that managers understand that their chances for increasingly senior positions depend on their demonstrated ability to bring complex-strategic-integration initiatives to successful completion. Promoting executives on the basis of their demonstrated CSI results speaks louder than statements about the need to create shareholder value. Top management will have to work on developing a CSI corporate context and CSI skills. Mistakes will be made, but the key is to spot them quickly and correct them. The relative importance of CSI initiatives and individual businesses may vary over time as the company evolves through different life cycles and industry transitions. But the leaders of multibusiness corporations should never vacillate in their support for complex strategic integration and its critical role in the company’s future.

About the Authors

Robert A. Burgelman is a professor of management at Stanford University’s Graduate School of Business in Stanford, California.Yves L. Doz is dean of executive education and a professor of global technology and innovation at INSEAD in Fontainebleau, France.Contact the authors at burgelman_robert@gsb.stanford.edu and yves.doz@insead.fr.

References

1. WPP, a holding company of independent marketing-services companies created by Martin Sorrell in 1985, is a good example. WPP seeks to create superior value for customers, employees and shareholders by getting its highly independent businesses to collaborate. See J.L. Bower and S. Ellingson-Hout, “WPP: Integrating Icons,” Harvard Business School case no. 9-396-249 (Boston: Harvard Business School Publishing Corp., 1996).

2. R.A. Burgelman, D.L. Carter and R.S. Bamford, “Intel Corporation: The Evolution of an Adaptive Organization,” Stanford Business School case no. SM-65 (Stanford, California: Stanford Business School, 1999).

3. D.A. Garvin, “Harvey Golub: Recharging American Express,” Harvard Business School case no. 9-396-212 (Boston: Harvard Business School Publishing Corp., 1996).

4. The opportunities identified in the strategic-integration framework are different from the growth vectors in Ansoff’s product-market framework. For instance, the scope-driven opportunity set could involve product development (new products developed by two or more business units together for their existing markets) or market development (new markets developed by two or more business units with their combined existing products) or both. Ansoff’s framework also does not consider trade-offs among the various growth vectors as a result of resource constraints nor the strategic-integration issues across business units possibly involved in the various growth vectors. On the other hand, the business opportunities generated in the context of each form of strategic integration can be fruitfully interpreted in terms of Ansoff’s typology. The two frameworks are thus complementary. See H.I. Ansoff, “Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion” (New York: McGraw-Hill, 1965). The assessments involved in establishing the different opportunity sets may vary across different parts of a company. A high degree of participation, negotiation and flexibility will be necessary in the process of establishing the maximum strategic-opportunity set in order to get companywide support. And significant external and/or internal changes may affect the frontier over time. Sometimes, such changes force companies to disengage from a major profitable opportunity when it does not fit any more with the corporate value-creation logic. Hewlett-Packard’s 1999 exit from test and measurement businesses is an example.

5. Y.L. Doz and G. Hamel, “Alliance Advantage” (Boston: Harvard Business School Press, 1998).

6. Robert Burgelman thanks Pekka Ala-Pietila, president of Nokia Corp., for that insight (personal communication).

7. R.A. Burgelman, “Strategy Is Destiny: How Strategy Making Shapes a Company’s Future” (New York: The Free Press, in press); and J. Kolotouros, J. Maggioncalda and R.A. Burgelman, “Disney in a Digital World,” Stanford Business School case no. SM-29 (Stanford, California: Stanford Business School, 1996); and J. Kolotouros and R. Burgelman, “Disney in a Digital World (B),” Stanford Business School case no. SM-29B (Stanford, California: Stanford Business School, 1998).

8. S.K. Yoder, “How HP Used Tactics of the Japanese To Beat Them at Their Game,” The Wall Street Journal, Sept. 8. 1994, A1.

9. J.M. Hurstak and A.E. Pearson, “Johnson & Johnson in the 1990s,” Harvard Business School case no. 9-393-001 (Boston: Harvard Business School Publishing Corp., 1993); and C.A. Bartlett and A. Mohammed, “3M: Profile of an Innovating Company,” Harvard Business School case no. 0-384-054 (Boston: Harvard Business School Publishing Corp., 1995).

10. F. Aguilar, “Johnson & Johnson (B): Hospital Services,” Harvard Business School case no. 9-384-054 (Boston: Harvard Business School Publishing Corp., 1983).

11. For early work on resource sharing among business units, see A. Gupta and V. Govindarajan, “Resource Sharing Among SBU’s: Antecedents and Administrative Implications,” Academy of Management Journal 29 (1986): 695–714. Also, top management can use various approaches to foster resource sharing. Bob Pittman, co-COO of AOL Time Warner, is renowned for his ability to get independent business-unit leaders to collaborate. He does so by convincing them that they’ll will win bigger by cooperating and also makes sure to give them the credit for successful cooperation. See C. Yang, R. Grover and A.T. Palmer, “Show Time for AOL Time Warner,” Business Week, Jan. 15, 2001, 56–64.

12. The contextual factors and skills proposed for building a company’s CSI capability can be related to McKinsey & Co.’s 7-S framework, which encompasses strategy, structure, systems, skills, style, staffing and shared values. The 7-S framework also emphasizes the importance of configuration and the balancing of each in harmonious ways. The contextual factors we propose touch on structure, systems and shared values. The proposed cognitive, political and entrepreneurial skills have obvious bearing on skills but also touch on style and staffing. Identifying the maximum strategic-opportunity set speaks directly to the strategy component in the 7-S framework. Examining what changes are needed in a company’s existing 7-S configuration in order to build a company’s CSI capability is an important task for top management.

13. R.A. Burgelman, “Designs for Corporate Entrepreneurship in Established Firms,” California Management Review 26 (spring 1984): 154–166.

14. R.A. Burgelman and P. Meza, “The New HP Way,” Stanford Business School case no. SM-7 (Stanford, California: Stanford Business School, 2000).

15. R. Simons, “Levers of Control: How Managers Use Innovative Control Systems To Drive Strategic Renewal” (Boston: Harvard Business School Press, 1994).

16. C.A. Bartlett and S. Ghoshal, “Beyond the M-Form: Toward a Managerial Theory of the Firm,” Strategic Management Journal 14 (1993): 23–46.

17. The difficulties associated with aligning incentives in multibusiness companies lead economists to emphasize the benefits of narrow (single) business strategies. See J.J Rotemberg and G. Saloner, “Benefits of Narrow Business Strategies,” American Economic Review 84 (1994): 1330–1349.

18. For an analytical approach to designing the relationships among incentives and strategy and structure in complex corporations using multiple dimensions in their structure (for example, function, product, geography), see D.P. Baron and D. Besanko, “Strategy, Organization and Incentives: Global Corporate Banking at Citibank,” Research Paper Series no. 1488, Stanford University Graduate School of Business, Stanford, California, 1998.

19. D.C. Galunic, “Recreating Divisional Domains: Coevolution and the Multibusiness Firm” (Ph.D. diss., Department of Industrial Engineering and Engineering Management, Stanford University, 1994).

20. T.R. Eisenmann and J.L. Bower, “The Entrepreneurial M-Form: Strategic Integration in Global Media Firms,” Organization Science (May–June 2000): 348–355.

21. For a discussion of the key entrepreneurial activities, see R.A. Burgelman, “Managing the Internal Corporate Venturing Process,” Sloan Management Review 25 (winter 1984). On a smaller scale, “patching” —which involves adding, splitting, transferring or combining chunks of businesses — is also a potentially useful entrepreneurial skill. See K.M. Eisenhardt and S.L. Brown, “Patching: Restitching Business Portfolios in Dynamic Markets,” Harvard Business Review (May–June 1999): 72–85.

ADDITIONAL RESOURCES

Little has been written about the management process involved in complex strategic integration. However, research on integration after acquisitions provides some insight on getting different organizational entities to work together. Interested readers will appreciate P.C. Haspeslagh and D.B. Jemison’s 1991 Free Press book, “Managing Acquisitions: Creating Value Through Corporate Renewal.” For research on strategic integration in companies operating in the global economy, we recommend Y. Doz, J. Santos and P. Williamson’s “From Global to Metanational: Competing in the Global Knowledge Economy,” which is scheduled for release this year.

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About the Research